- The coronavirus pandemic accelerated payments industry digitization by two to three years.
- And online retail sales surged to $794.50 billion, a record-breaking 14.4% of total US retail in 2020.
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The coronavirus pandemic accelerated payments industry digitization by two to three years, as lockdowns, restrictions, and ongoing consumer health concerns upended daily life in ways that trickled into spending trends and consumer habits.
The payment processing industry overview
The power dynamics in the payments industry are changing as businesses and consumers shift dollars from cash and checks to digital payment methods. Cards dominate the in-store retail channel, but mobile wallets like Apple Pay are seeing a rapid uptick in usage and paving the way for the future of payments.
At the same time, e-commerce will chip away at brick-and-mortar retail as smartphones attract a rising share of digital shopping. Digital peer-to-peer (P2P) apps are supplanting cash in the day-to-day lives of users across generations as they become more appealing and useful than ever.
And change is trickling down into bigger industries long-dominated by cash and check, like remittances and business-to-business payments. In response, providers are scrambling for market share. Skyrocketing consolidation that creates mega-giants is forcing providers to diversify in search of new volume.
E-commerce will chip away at brick-and-mortar retail as smartphones attract a rising share of digital shopping.
The payments industry explained
In this report, Insider Intelligence will examine the payments ecosystem today, as well as the pandemic’s impact on growth drivers and the industry’s future. The report begins by tracing the path of in-store and online payments from processing to settlement across key stakeholders. It then unpacks pandemic-driven changes in usage of various payment methods, and forecasts growth and defines drivers for key digital payment channels and transaction types as the pandemic accelerates digitization.
Finally, it highlights three trends that are changing the industry, looking at how surging fraud, a revenue crunch, and rising demand for white-labeled payments features from unconventional players might spark change in the years to come.
Payments industry trends
In-store payment methods
In-store payment methods dipped a little over 3% in 2020—but it still holds the majority of sales. Debit and credit cards continue to lead the segment, as cash and check usage slowly ticks downward. And surging contactless penetration is set to bring mobile payments in-store to prominence for the first time in the years ahead.
Surging e-commerce will continue to eat away at in-store payments’ share of overall retail. Online retail sales surged to $794.50 billion, a record-breaking 14.4% of total US retail in 2020, thanks to increased spending on smartphones in particular.
The digitization of payments isn’t just contained to retail, though, with real time mobile P2P payments, digital remittances, and digital business payments continuing to blossom as change spreads through the ecosystem. Mobile proximity payment volume accelerated to $131.36 billion, per Insider Intelligence estimates, as major wallets added users at a record clip in 2020.
Payments made via credit card will grow from $1.75 trillion in 2019 to $1.82 trillion in 2024, marking a 0.79% CAGR. High credit appetite and robust rewards programs — which are set to expand as issuers aim to keep their payments solutions top-of-wallet — will entice spending and help the segment tick up, though growth will be slower than inflation.